The Rwanda Revenue Authority is laying blame with the Ministry of Finance and Economic Planning for revenue shortfalls due to unrealistic targets, which the ministry gives the tax collection body.
In the past two fiscal years, the tax body has struggled to meet its targets partly because of dwindling revenue from international trade.
However, RRA told the Public Accounts Committee (PAC) last week that the Ministry of Finance and Economic Planning, under which RRA works, sets very high targets and dialogue is needed for a middle ground.
The Ministry of Finance and Economic Planning identifies taxable areas in order to grow the country’s revenue base and only works with RRA to execute, implement and collect taxes.
RRA said that with the exception of this fiscal year, they have previously not been involved in making revenue forecasts yet the current tax base can’t raise what is expected by the ministry.
“This year we worked with South African experts to develop a scientific model on what we think is the revenue potential and we had a dialogue with the ministry and the model was approved,” said Richard Tusabe, the Commissioner-General of RRA while appearing before PAC.
Mr Tusabe said revenue collection targets are set after assessing and projecting the economy’s performance and outlook using taxable activities and other economic indicators.
However, it is important that the revenue targets are realistic and aligned with economic activities of the country.
Rwanda’s economy is among the best performing in Africa growing at an average of 8 per cent in the past five years save for 2013 where it shrunk to 4.6 per cent and is expected to grow at over 6 per cent this year.
Although the economy has been growing, the tax body still finds it had to meet its targets.
The Ministry of Finance and Economic Planning is setting high targets that are not being met at a time when the government is trying to increase domestic resource mobilisation in order to move away from donor dependency.
A shortfall in tax collections is likely to affect public financing, which ultimately affects the economic growth of the country.
Currently, the government finances 66 per cent of the budget while the remaining 34 per cent is funded by development partners.
Sluggish economic activity
In the first six months of 2014, tax and non-tax revenue collections were at Rwf406.3 billion ($589.7 million), five per cent below the Rwf427.9 billion ($621.1 million) target.
Last year, the economy suffered as a result of sluggish economic activity in 2013 occasioned by cuts in government spending. The first quarter running from July to October 2013 saw RRA collect Rwf237.9 billion taxes against a Rwf243.5 billion target.
The government is targeting to raise Rwf986 billion in domestic taxes this financial year.